I’m CEO of Betterment, a company I founded in 2008 to help people invest better. I write about behavioral finance, entrepreneurship, and general FinTech industry commentary. I want to share my knowledge to make your life easier.

The Anti-Gamble Retirement Plan

My job is to provide investment advice to tens of thousands of busy professionals, so I’ll admit to finding all talk of retirement compelling. But the recent PBS Frontline report, The Retirement Gamble, has captivated industry leaders, commentators, and everyday Americans alike.

The segment shed light on long standing issues in the financial services industry — namely high fees, hidden fees, and poor quality products designed to confuse. Everyone should watch it.

I’m glad these issues are in the spotlight, but I worry that people walked away feeling helpless. Sure, the industry has a lot to answer for, but gambling is not the right reference point here. By definition, gambling has a negative expected return, while smart, diversified investing has a positive expected return.

I’m a firm believer that you can save enough for retirement and you can save for your goals if you do it right and you do it for long enough.

1. Educate Yourself

PBS’ Frontline Correspondent Martin Smith was astonishingly candid with his viewers, sharing not only the fact that he had not saved up enough for retirement, but that he did not understand the 401(k) he used for his own small team of employees. What’s worrying, is that this is normal: The US Government Accountability Office showed that some 401(k) sponsors – i.e. the employers – do not fully understand the fees structures of the accounts they recommend to their employees.

The important lesson here is to understand that not all portfolios are created equal. Arm yourself with the right knowledge to make better decisions.

Smith was quick to demonstrate a common inability to understand the effect of compounding – who would have thought 2 percent would make such a difference?!

Yet a 2011 study demonstrates that it is not uncommon to “miss” the effects of compounding – in returns as well as fees. A sample of MIT and Harvard mathematical and financial majors (assumed “bright” people used to doing complicated equations) underestimated the future value of a standard savings account by two thirds. Humans aren’t equipped naturally to compound things, so the results are often always surprisingly large.

The lesson here? Don’t delay in investing. The effects of positive compounding are bigger than you think.

4. Index All The Way

Jack Bogle advised: “Be a creature of the market and not the casinos”, meaning — don’t gamble your retirement funds on active management, but passively invest for long-term gains. “Indexing” is the practice of investing in thousands of companies at once, to replicate the activity of the broad stock market. The act of diversification mitigates against exposure to risk, and aims to replicate the returns of the market over the long term.

Did you notice that the only people on the program advocating for active management were the representatives of firms that make money off of active management? It’s no small coincidence. The mutual fund industry is notoriously opaque, and as the unfortunate investors featured in the program discovered, complex structures often indicate (legal) kickbacks.

It’s a lesson for investors to seek investment products that are clear and simple in their approach with all fees noted up-front. If your provider says “no”, they’re probably not doing the right thing by you.

6. Ask for Fiduciary Duty

It continues to surprise consumers that some financial advisors are not legally required to act in their best interest. Though some may go by the title of “advisor”, these professionals are not registered investment advisors, but brokers or salespeople for the funds you may invest in. This means they do not have to act in your best interest.

My advice? Expect more from your provider. Your interests must align.

7. Don’t Do It On Your Own

The complexity of most retirement products, and the vulnerability of its consumers demonstrate a core issue with the average approach to retirement: It’s really hard to do on your own. Every individual should have access to financial advice that is easy to understand and simple to execute. If you paid attention to the Frontline piece you’d be forgiven for believing this is hard to come by!

It’s why I firmly believe that the onus in on us – the financial services industry – to make better products that guide people to better decisions. Products that are fully transparent, low cost, easy to use, easy to understand, and designed to optimize behavior.

As Bogle summed up on Frontline: “The money managers always want more, and that’s natural enough in most businesses, but it’s not right for this business.”

I agree. It’s time for companies to stop gambling with their customers’ retirement, and instead, make the chance of achieving it – or any goal – highly likely with appropriate fund recommendations. It’s the anti-gambling approach.

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